The Role of Accounting in the 21st Century Firm

39 Pages Posted: 4 Jan 2015

See all articles by Jerold L. Zimmerman

Jerold L. Zimmerman

University of Rochester - Simon Business School

Date Written: January 2, 2015


I explore the evolving role of accounting information in allocating capital. Accounting arose to control conflicts of interest in organizations (stewardship role). The industrial revolution spawned capital-intensive firms and public capital markets with dispersed shareholders to finance these firms. The regulation of these public capital markets shifted the role of accounting towards providing investors information for making informed investment decisions (valuation role). With the advent of the semiconductor and global competition, emerging and public firms today differ from their predecessors in fundamental ways. Exploiting the information technologies created by the semiconductor, 21st century firms are now more knowledge based, have more intangible assets, are more reliant on their employees’ human capital, confront increased competition, and face diverse conflicts of interests and hence different challenges accessing capital than their forerunners. Responding to the demands of 21st century firms, private-equity markets provide a bundled service – capital and governance. To supply this bundle, private equity firms require accounting information to control the conflicts of interest both within the private-equity firm (between the general and limited partners) and within their investees. Controlling these conflicts shifts the role of accounting back towards its original stewardship roots. The valuation role remains important, but there is little to value unless the conflicts of interest are first mitigated.

Keywords: Knowledge-based firms, stewardship, efficient contracting, creative destruction, accounting standard setting, rules-based accounting standards, private equity

JEL Classification: D23, G23, G32, L14, L20, M20, M41, M54, N20, N80, O17, O30

Suggested Citation

Zimmerman, Jerold L., The Role of Accounting in the 21st Century Firm (January 2, 2015). Available at SSRN: or

Jerold L. Zimmerman (Contact Author)

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States
585-275-3397 (Phone)
585-442-6323 (Fax)

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